2023-09-24 - Tinytouchtales
The last two weeks have been quite a ride for the Unity and the greater game developer community. With seemingly no warnings what so ever, Unity announced a radical change in their fee policies.
To give you a bit of context, I preamble this post with a bit of history about the company that creates Unity3D.
If you are not familiar with the company Unity, it’s a game Engine creator that has about 70% market share and is the number one game engine for smaller studios, independent game creators and hobbyists. While a lot of smaller studios use Unity, there are some big hitters like Blizzard’s Hearthstone, or miHoYos Genshin Impact that raked in $1.9 Billion dollars in revenue in 2022, that also use Unity as their game engine.
Unity was founded in 2004 and gained much deserved popularity in these last 20 years. In Sept. 2020 the company became publicly traded with an initial IPO valuation of $1.36 Billon. What you might not know is that in the first 2 years of COVID valuations for any tech company were horribly inflated, because everyone at the time stayed at home and used said technologies, making it appear that this was the new normal. But soon enough this bubble burst and with many other tech giants Unitys stock price decent began. On Nov 15th 2021 Unitys stock priced peaked at about $189, a year later on Nov 15th 2022 the stock price had lost about 80% in value and was trading at about $34. How did this happen?
It seems that Unity main business would be selling its engine but a quick look at their finances reveals that only 29% of their annual revenue comes through selling their game engine. A whopping 64% however comes from their mobile games Ad business. (The rest of the revenue comes from “Strategic Partnerships” which probably include direct deals with companies to license the engine or parts of Unitys other services.) The mobile games Ad business is, or better, was huge when COVID happened. People where bored so they used their phones to play games and since most mobile games these days integrated ads in one way to another Unity was able to rake in huge profits providing these Ads. But in April 2021 Apple basically declared war on all Ad companies.
The IDFA, or Identifier for Advertisers, is a unique identifier assigned to a user’s device used primarily for the purpose of ad targeting and measurement on Apple devices, including iPhones, iPads, and Apple TVs. It allows advertisers to track data so they can deliver customized advertising to users, measure the effectiveness of their ads, and analyze user engagement. However, with the release of iOS 14.5, Apple introduced a new feature called App Tracking Transparency (ATT), requiring apps to ask users for permission to collect and share this identifier. Users can now opt out of sharing their IDFA with app developers and advertisers, which significantly impacts the ability to deliver personalized ads and track ad performance. If a user opts out, the IDFA value returned to the developer is all zeros, effectively making the user untrackable in terms of personalized advertising. In short, IDFA is a user-specific, device-oriented identifier used primarily for personalized advertising, but users have the option to restrict its use with the newer iOS updates.
This change basically killed the effectiveness of Advertising and with it severely threatened a large amount of Unitys annual revenue. In a last desperate attempt to save their dying Ad business, Unity acquired and merged with IronSource in November 2022, by buying the company in an $4.4 Billion all stock deal.
IronSouce another (probably failing) Ad company that operates in the digital advertising ecosystem, connecting app developers with advertisers and enabling advertisers to showcase their ads within apps to engage users effectively was bought with the goal to optimize Unitys Ad Business and combat ATT with their own solutions. If this is actually working is questionable, a quick look at Unitys stock price after Nov 2022 reveals that the stock is trading within the $30-$45 range, being stable but not able to grow any further. And here lies the crux of Unitys new fee policy changes: the unending need for growth.
It’s not entirely accurate to say that public companies in the U.S. are legally bound to grow their revenue. However, public companies have a legal obligation to act in the best interests of their shareholders. This is often interpreted as a duty to maximize shareholder value, which can include increasing revenues, profits, and/or share price over time. I assume that Unity looked at its failing Ad business and came up with a strategy to maximize profits with their engine itself introducing a new fee structure.
The initial announcement on Sept. 12th 2023, proposed a new revenue share fee model where developers with Unity Personal and Unity Plus that have made $200,000 USD or more in the last 12 months and have at least 200,000 lifetime game installs, or Unity Pro and Unity Enterprise developers, who made $1,000,000 USD or more in the last 12 months and have at least 1,000,000 lifetime game installs, should pay a monthly fee of $0.20 or $0.15-$0.02 per new install in any given month. That this type of deal, especially based on download numbers, is atrocious needs no explanation, but the most devious part about this whole announcement was that Unity basically retroactively changed the deal for all Unity versions ever made. A huge controversy arose from the fact the they deleted the old TOS from a public GitHub repository just a few month before the new terms went public. Suffice to say that his announcement hit the Unity developer community like a nuclear bomb and created the most outrage the company has ever seen within 24h of the announcement.
I will not go into more detail here, but just assume that basically every Unity developer from the smallest to the biggest ones were just not having it. A myriad of studios put out public statements to condemn Unitys actions and a group of big mobile companies straight up stopped using Unitys ad services until further notice. It took Unity 6 days of full-on outrage, anger and broken developer hearts to post a „we’re sorry“ message on Twitter:
On Sept. 22, 10 days after the first release, Unity updated its policy, with another (half ass’ed) apology on their blog to the following revised terms:
No game with less than $1 million in trailing 12-month revenue will be subject to the fee. Unity Personal (Free) has its revenue cap increased to $200k until Unity Pro has to be purchased. Developers get to decide if they agree to a 2.5% revenue share fee (after the $1 million is reached) or a more nebulous number of „new people engaging with your game“. (I personally have no idea what the second option entails and at this point I’m too afraid to ask about the details). The numbers will be self reported and Unity allows people to stay on older versions of Unity, keeping the TOS for those versions intact. The new fees will only be required once the developer upgrades to the latest LTS (Life Time Support) version of Unity, which should be 2023 at this point. The biggest changed for me personally, that was not openly announced and is just a side note, is that Unity Plus, the mid tier subscription that most small/independent creators use, will be axed. This is where my concerns come into play.
I love using Unity. It’s an incredible tool that made the bigger part of my career possible. (Stencyl taught me how to walk and Unity how to run.) I’ve been using it non stop since 2014 and without it I wouldn’t be able to life the independent game creator dream. I invested countless hours, build up expertise, invested in many asset store plugins and I maintain 8 live games in the stores, the oldest one from 2015.
And as much as I would like to jump ship and try out other engines, it’s just not feasible for me at this point and frankly I want to continue
to use Unity, despite all the things that happened in the last days.
I’ve been a Unity Plus subscriber since 2015 because even tough I can live off of my games revenue, I never crossed the $200k cap within a year. I was always happy to pay for Unity since I know the realities of maintaining a product and the amount of money it requires to do so.
But now I’m in a very tough spot where due to the way the new fee has been designed, I’ve been given a 1 year ultimatum to either upgrade to a Pro subscription and increasing my monthly fees from about $35 to $180 (without any benefit, since I don’t need console support), or going through the very painful and maybe impossible process of updating all my games to Unitys latest version, since most of my games still run on 2021.1.5. Some of my old games use deprecated plugins and code that probably straight up won’t work with the newest versions, because the engine itself changed quite a lot in the recent years and not only for the better. My plan for now is to use the grace period where I’m able to purchase Unity Pro for the cost of Plus for another year and explore my options for updating my old games and after that I will reassess my options again.
Overall this whole development has been disheartening to say the least. Again I’m all for paying and contributing my part to keep the great people who created this engine afloat, but looking at the recent moves Unity „the publicly traded company“ has made, has not given me big hopes that this trend of more aggressive cost increases to create „more shareholder value“ will end any time soon.
To end this post on a positive note, I just wanted to say thanks to the developer community that has been just great in these last days.
It’s been a long time since everybody was on the same page and stood up in „unity“ against a company that should know, that the most valuable asset they have are the very developers they tried to screw over.
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